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Bond rating agency cautious about BC budget, economy

A B.C. finance ministry press release this week called the latest commentaries from two bond rating agencies “encouraging” and quoted minister Colin Hansen saying they were “favourable.”

The commentaries from Moody's Investors Services and the Dominion Bond Rating Service do laud the government's fiscal prudence and say the province has enough flexibility to weather the economic downturn.

The DBRS commentary, however, offers several notes of caution about the province's economy and the budget Hansen presented in February:

* “The recent budget . . . points to manageable pressures for the credit profile, although fiscal forecasts are likely to be revised downward in the coming months as a result of the continued deterioration in economic conditions nationally”;

* “DBRS believes the forecasts carry notable downside risks, especially for corporate and personal income tax receipts, given the weakening momentum besetting the domestic economy”;

* “DBRS does note that British Columbia has discontinued the use of a forecast allowance ($750 million in recent years), which leaves little cushion to absorb unexpected fiscal deviations and still achieve targets”;

* “The budget assumes a contraction in real GDP of 0.9 [percent] in 2009. This was conservative at the time of the budget but now appears somewhat optimistic relative to the private sector consensus, which points to a 1.3 [percent] decline”;

* “DBRS expects the outlook for 2009 to continue to be revised downward over the coming months, also raising doubts with respect to the extent of the rebound anticipated in real GDP for 2010”;

* “Several areas of the economy continue to show deterioration, especially the labour market, where the unemployment rate reached 6.7 [percent] in February, compared with the 6.2 [percent] average for 2009 assumed in the budget, and the number of Employment Insurance recipients was up 47.7 [percent] in January versus a year ago”;

* “There is a risk that the post-election budget could significantly deviate from the one recently introduced, due to either further measures aimed at addressing a deteriorating economic outlook or a shift in priorities created by a potential change in government.”

DBRS's commentary anticipated the government would fail to pass the budget before the election, and noted a new one will need to be presented within 90 days of the new government taking office. “DBRS plans to conduct its formal annual review and publish a full report on the Province when the post-election budget is presented.”

The Tyee's Will McMartin called the February budget “toxic fudge” and Capital 1 Credit Union's Helmut Pastrick called it overly optimistic.

Andrew MacLeod is The Tyee’s Legislative Bureau Chief in Victoria. Reach him here.

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